The flexibility of freelancing is appealing to a lot of people, but I don’t think many fully understand what that means until they’re actually doing it. Here are five major differences to consider before making the switch from cubicle-dweller to card-carrying freelancer.
1. Freelancers buy their own benefits.
Salaried employees typically get employer-sponsored health and dental insurance, as well as retirement plans. Freelancers are on their own. And if they go without insurance, it could wipe them out financially. Fortunately, organizations like the Freelancers Union offer health, dental, disability, and life insurance to its members, but these plans may be more expensive than one you’d get through your employer.
2. Freelancers set their own hours.
If you’re someone who’s highly driven, then setting your own schedule may not be an issue for you. But if you need structure, you’ll either have to create it for yourself or make peace with working for the man. Those who don’t meet deadline don’t get paid, which is a pretty powerful incentive for most freelance writers. The flexible vs. fixed hours thing is an important distinction for clients, too, because if a client treats you like an employee without providing employee benefits, it could get them into hot water with the IRS.
3. Freelancers take responsibility for professional development.
If you work in an office, you’ll usually get periodic performance reviews. And if you’re really lucky, your company might pay for you to attend a conference or training program. Freelancers don’t get those perks. Clients are often too busy to offer in-depth feedback on your work, so you may want to seek out a mentor or critique partner. And you’ll have to pay your own way at conferences or professional seminars, but you can often deduct it as a business expense on your taxes.
4. Freelancers pay self-employment tax.
Uncle Sam splits the burden of Medicare and Social Security deductions from each paycheck between employers and employees. But freelancers are on the hook for both portions of Medicare and Social Security thanks to a little thing called “self-employment tax.” In 2011, the IRS gave freelancers tax-payers reprieve a little, so they owe an extra 13.3% (10.4% for Social Security and 2.9% for Medicare) instead of the usual 15.3% self-employment tax. Still, that’s extra money that your corporate counterparts don’t owe the IRS, so you need to account for this when they set your rates.
5. Freelancers don’t get holidays or sick days.
Salaried employees usually get paid for federal holidays, sick days, and vacation time. In general, freelancers only earn money when they’re actually working (and remember, administrative tasks like invoicing or marketing are not billable hours). The exception is freelancers who’ve created passive income streams like ebooks or webinars, which can generate sales even when they’re not at the computer. But most freelancers operate on a per hour or per project basis, which means they need to build a little extra into their rates to compensate for the lack of vacation time and holidays.
